UK’s new insolvency process should worry company creditors around the world

Virgin Atlantic’s rescue deal is something of a watershed in how companies can escape insolvency.

Virgin Atlantic’s rescue deal is something of a watershed in how companies can escape insolvency. The deal, which will involve Richard Branson and US hedge fund Davidson Kempner Capital Management injecting US$1.6 billion (£1.2 billion) into the airline, uses the new restructuring plans made possible by the UK Corporate Insolvency and Governance Act 2020.

While most creditors have accepted the rescue deal, the approved restructuring plan will also bind those who are against it. The UK procedure has also been recognised by a court in New York so it protects Virgin’s American assets as well as its British ones.

The new Act is quite a shift from the old UK insolvency rules. There’s always the need to find a trade-off between protecting creditors and enabling business rescues, but the new rules mainly promote rescues, and there is little additional protection for disgruntled creditors. With the fallout from COVID-19 likely to lead to many more collapses, the implications are considerable. And, just like in the Virgin case, this looks set to affect creditors’ rights around the world.

Controversial insolvencies

In the UK, there have been significant controversies concerning the use of pre-packaged administrations (also known as pre-packs). Particularly popular in the early 2000s, pre-packs allow failed businesses to be sold to the best bidder using a pre-negotiated (“pre-packaged”) agreement between the debtor and the buyer.

Though pre-packs minimise costs, delays and negative publicity, they quickly became a way for distressed businesses to be sold for a pittance to a buyer connected to the debtor. The debtor’s shareholders retained control and the creditors (and taxpayers) received little or nothing.

The government tightened up the rules in 2015, requiring that businesses be properly marketed and introducing a pool of independent experts to guide creditors over whether a proposed sale was reasonable.

These changes largely worked, and pre-packs continue – such as the recent rescue of forex services group Travelex. But they don’t work where groups of creditors obstruct them, and practitioners have long lobbied for more instruments to rescue distressed businesses.

The traditional rescue route for companies is to enter administration and either do a deal with creditors known as a company voluntary arrangement (CVA), or get a court order known as a scheme of arrangement to impose the deal on any creditors unwilling to accept it. Both use lots of time and money, and come with strict rules.

The government had long promised reform, but the COVID-19 pandemic meant this could no longer be delayed. Among the new rules designed to facilitate rescue is the new restructuring plan procedure. Much to the approval of the industry, a rescue can now be imposed on dissenting creditors with a court order (known as a “cross-class cram-down”), provided that some conditions are met. Additionally, the rules around the level of creditor approval required for these plans to be permitted are more relaxed than for CVAs and schemes of arrangement.

The order of priority that applies in liquidation cases is not strictly binding in restructuring plans either. Normally creditors must be paid in ranking order – so that, for instance, mortgage holders are paid before trade creditors. Usually this means that lower-ranking creditors receive nothing, and that a higher-ranking class can block a debt repayment plan. Now it is easier to sidestep them.

Admittedly, courts must first be satisfied that dissenting creditors will be no worse off than with any alternative plan (normally a pre-pack). Yet UK courts have proved reluctant to question the judgement of those running the company, thus further limiting the creditors’ protection.

Restructuring plans can also be carried out by companies with the most tenuous connection with the UK (unlike CVAs, which require companies to be mainly focused on the UK or either registered here or in the European Economic Area). For the court to find a “sufficient connection” with the UK, it may even suffice that restructuring negotiations were carried out there.

Since Virgin Atlantic is a UK company, there is no such problem here, but recall that that deal has been recognised by a New York court. This is because both the US and UK have adopted the UNCITRAL Model Law on cross-border insolvency, which means they recognise insolvency procedures initiated in one another’s countries. Many other countries are also parties to this framework, so companies with little connection to the UK will probably be able to use the rules to protect themselves from creditors worldwide.

The problem with rescues

Giving companies more protection from creditors is not necessarily a bad thing, of course. If you rescue a company, you save jobs. But not always. A “rescued” company whose business is fundamentally broken is a “zombie” company, a sort of parasite in our economy. It may crowd out viable businesses, or push unpaid creditors over the edge. Also, the money lost by the government in failed rescues could be spent more usefully.

Take Debenhams’ restructuring saga. Debenhams was rescued in April, after sales plummeted under lockdown. The process is likely to result in a sale of its remaining profitable assets by the end of September.

But this is the third time in less than a year that Debenhams has gone through an insolvency procedure. During both previous attempts, suppliers and creditors went totally or partially unpaid. Debenhams also received state COVID support, for instance through the job retention scheme and the postponement of taxes that were due.

The retailer now continues as a going concern without fully paying landlords and suppliers – except essential ones – due to being in administration. And it is quite likely that more creditors will end up unpaid as a result of the latest rescue.

Should we turn the clock back to the good old days in which companies were liquidated and businessmen sent to prison for failing to pay their suppliers? Far from it. But the risks associated with restructuring plans seriously need to be discussed.

The government should introduce more stringent eligibility and approval criteria to ensure that only viable businesses are rescued. For example, restructuring plans could be made available only to companies heavily involved with the UK, and the additional voting requirements applicable to CVAs and schemes should be extended to the new restructuring plans. Unless we move quickly, we can expect a lot more zombie companies and distraught creditors in the months ahead.

Source: Australian times


Surge in Portsmouth firms filing for insolvency during lockdown, research finds

FIGURES have shown a huge surge in the number of businesses filing for insolvency compared to last year, with many firms kept afloat by government funding fear they will go insolvent coming out of lockdown.

Analysis conducted by the BBC’s Shared Data Unit shows around 5,000 companies have filed for insolvency since March, down compared with 6,500 last year, as government funding meant they went into effective hibernation.

In Portsmouth, 13 businesses filed for insolvency during lockdown between March 24 and June 30 compared to just six last year.

In Fareham seven did, compared to three last year, in Gosport two did compared to one, and in Havant eight did compared to just one last year.

Companies working in information and communication had seen the largest increase in insolvencies.

In separate research, Begbies Traynor said 527,000 businesses were in significant financial distress at the end of June and the true impact would only be seen in months to come.

Partner Julie Palmer said: ‘This crisis will force many zombie companies out of business. While these were clinging on to survival prior to the pandemic, many will now have become simply unviable due to high levels of debts and poor sales.’

This news comes despite the government spending around £160bn in support for businesses.

Economic support has ranged from loans to business rate relief, tax deferrals, top-up grants, a future fund for blue chip companies and the Bank of England issuing bonds to corporations.

However, it is not all doom and gloom, as the research also found a resurgence in new businesses being set up during lockdown, with around 180,000 companies registering in the UK from April to June.

In Portsmouth 408 new businesses were registered, 226 in Havant, 174 in Fareham and 78 in Gosport.

One of those was Sherlock’s, a bar in Clarendon Road, Southsea, which opened on July 4. It was set up by Richard Peckham and Debbie Moorhead.

Richard said: ‘All our friends and family thought we were a bit mad to set up a business right now but we felt that it was a good time as people were out of their normal habits. It has been really good so far.’

Richard also runs a marketing company called Portsmouth Flyers and Debbie is a hairdresser.

Richard said: ‘Both of those jobs came to a grinding halt during lockdown so it gave us six clear weeks to get the bar ready.’

Source: portsmouth.co.uk


Rules on insolvency ‘must be eased to prevent flood of bankruptcies’

Britain should prepare its courts for a flood of bankruptcies in the next few months and needs to liberalise its insolvency system to prevent viable businesses from going bust, a senior American economist and policymaker has warned.

Randall Kroszner, who sat on the Federal Reserve’s board of governors during the financial crisis, said that policymakers should take a pragmatic approach to corporate insolvency to protect jobs and to preserve as much economic value as possible.

He urged politicians to avoid being seduced by false hopes of a swift, V-shaped, recovery. “Of course politicians are reluctant to look to the negative,” he said. “Everybody wants a V and if you have a V you don’t have to worry about widespread bankruptcy and restructuring. But we have to acknowledge that this might be the case, so it’s important to be prepared for that and to minimise the damage.”

Governments around the world have begun to adapt insolvency laws to try to mitigate against the consequences of an expected surge in business failures. In March, Britain suspended laws on wrongful trading, allowing directors to keep technically insolvent companies open during the pandemic without fear of legal action. Under wrongful trading laws, directors can be sued for failing to wind up a company if it is running out of cash and facing insolvency.

Nevertheless, politicians and bankers are braced for a wave of business failures. Companies have borrowed billions of pounds through government-backed loans and economists are warning that many will collapse under of unsustainable debts if economic demand does not recover quickly enough.

Professor Kroszner, of the University of Chicago’s Booth School of Business, said that a relaxation of the insolvency rules could help to protect jobs and economic activity. “Given the number of bankruptcies are likely to go up quite significantly, it can be better for the economy and better for the debt-holders to not [wind down the business] and to do a restructuring that maintains employment,” he said.

“You won’t have the same liquidation and everyone being turned out of work. You can say, ‘OK, there’s a solid operation here with a high debt, so we want to restructure the debt burden but we want to maintain the underlying economic activity.’ That’s good for the economy, good for the workers and good for the bond-holders.”

He said that a good bankruptcy system was able to distinguish between unviable, or zombie, companies and those that would have survived were it not for Covid-19. Professor Kroszner, 58, drew on the example of Chapter 11 proceedings in the United States, which allow businesses to operate while paying creditors through a restructured payment plan and for directors to continue to run the business. Governments worldwide have borrowed from Chapter 11, but many of the benefits are available only in America.

In May, Chapter 11 proceedings in the US soared by 48 per cent, prompting bankruptcy experts to warn of potential delays in processing claims. They said that many viable businesses would be forced into liquidation prematurely if backlogs grew excessively. A group of academics wrote to Congress, urging policymakers to hire more clerks and to bring judges out of retirement.

Professor Kroszner said that British courts would face similar challenges. “Having a very effective and efficient bankruptcy, where you have expedited bankruptcies and sufficient resources in the legal system, is very important,” he said.

 

Source: Business Matters


The new corporate insolvency and governance bill: does it make moratorium better

In recent months, the UK accounting industry has become enamoured with talks of refining the moratorium process to generate a more debtor-friendly experience.

As businesses continue to recover from the recent pandemic and get their operations back on track, debtors have continuously urged the government to rework their moratorium process for favourable conditions. Amid talks of ease and revisions, however, lawmakers and accounting firms alike have also raised new questions over the practicality of a new mortarium because of practicality issues rooted in UK insolvency.

A new approach to the moratorium process

Recently, the government introduced the revised and debtor-favourable version of the moratorium process in the form of the Corporate Insolvency and Governance (CIG) bill.

With its recent release slated to be far more favourable for the terms and conditions that debtors seek in these times, insolvency practitioners have looked to the update as an effective means of balancing concerns out. Among the new additions that the CIG bill has brought about, however, the scope of the “monitor” position has been received with much concern as its structure poses a potential hindrance to the bill’s use.

Throughout what was considered by many practitioners as one of the quickest examples in history, the CIG bill was enacted in just a little over a month— but some say it may have been too soon. Now that the revisions are in effect, UK insolvency law is currently in the process of adjusting to different temporary and permanent changes that include a new moratorium process.

Generally speaking, the new process is distinguishable from past iterations because it allows firms in a distressed position or situation to review their financial health. This revision, in turn, yields a distinct form of board creditor protection from any legal implications during the process wherein a firm assesses the viability of their business and its chances of recovery.

How the new bill’s effects on moratorium may be a stepping stone to improvement

Regarding figures, the new moratorium revision seeks to provide companies in troubling finance waters around 20 working days worth of breathing space upon initial filing. This breathing room period, however, can also be extendable anywhere between an additional 20 working days or an entire year— which is primarily subject to the approval of creditors.

According to R3’s former president Duncan Swift, the former leader stated that “The moratorium is an opportunity for the company to assess the financial circumstances that it finds itself in.” The professional also cleared up that the new moratorium isn’t tied to a formal insolvency process— allowing more breathing room and flexibility for companies looking to assess their situation.

Additionally, Swift defended the new revisions and their effect on the practicality issues of UK insolvency: “This free-standing moratorium gives management more time to consider the options available and not to have ‘pre-decide’ whether to go in administration or into a company voluntary arrangements (CVA).”

A big-four take on the current revisions

In terms of a Big Four firm’s take on the new CIG bill update and its underlying moratorium revisions, KPMG’s global head of insolvency Blair Nimmo believes such an update is favourable.
According to Nimmo, the moratorium process provides another viable option that insolvency practitioners can utilise to save a business with potential from financial demise. Attesting the claim that this revision leaves room to manoeuvre, the global head of insolvency further expressed her favour of the CIG bill’s moratorium revision, stating:

“It would be horrendous for businesses to fail simply because they didn’t have a period to properly pursue different solutions, such as the sale or refinance of the businesses, whether it’s a [renegotiation] of a contract, or new creditors, etc. It would be bad if a perfectly viable business fell because of lack of time.”

Conclusion

As businesses continue to struggle with staying afloat amid the COVID-19 pandemic and are now forced to consider filing for insolvency, the new GIC bill seeks to provide a solution that works. With its renewed take on the moratorium process, the piece of legislation seeks to assist businesses as they get through this tough time.

If you’re looking for more accountancy news in the UK, visit our site today!

Source: Accountancy Today


Business Financial Distress UK

HS2 college at risk of insolvency seeks partner

The national college for HS2 is on the hunt for a provider to partner with following a grade four Ofsted report and warnings from the FE Commissioner it was facing “potential insolvency”.

The National College for Advanced Transport and Infrastructure (NCATI) told FE Week it was “working through a shortlisting process for a new partner” after it was late submitting financial statements for 2018-19.

A spokesperson said a new partner would “help us deliver the NCATI vision and improve quality”, and following the shortlisting process, NCATI plans to “embark on an open public consultation”.

He said they “remain confident” they will be able to “fulfil our ambition to train and upskill a broad and inclusive generation of talent from across the country”.

NCATI refused to go into more detail about what the partnership would mean for the future of the college, or who the potential partners are.

This isn’t the first time a troubled national college has had to partner with other providers. The National College Creative Industries (NCCI) partnered up with two local providers and then dissolved itself earlier this year, having swallowed a £600,000 bailout from the Department for Education to make it through 2017-18 as a “going concern”.

Access Creative College took over NCCI’s apprenticeships provision and South Essex College took over its classroom provision while NCCI restarted as a limited company.

NCATI, then known as the National College for High Speed Rail (NCHSR), took £4.55 million from the DfE to sign off its 2017-18 accounts.

NCHSR was opened in 2017 by then-education secretary Justine Greening with £40 million in capital funding from the Education and Skills Funding Agency to purchase equipment and construct facilities.

It became the National College for Advanced Transport and Infrastructure last October.

The college was engulfed in controversy at the start of 2020 when FE Week broke the news it had hired lawyers to stop a grade 4 Ofsted report from November being published, through a judicial review in the High Court.

NCATI eventually dropped its legal challenge at a cost of £73,000 and the report was released last February, revealing that employers were having to teach apprentices skills that were not covered by the college.

The FE Commissioner Richard Atkins intervened in the college in December, finding it would not be able to sign off its 2018-19 accounts as a going concern “without a commitment of 12 months of continued emergency funding”. He had instructed the board on how to operate while facing “potential insolvency”.

Atkins found NCATI had also based its 2019-20 budget on having 761 apprentices and 263 full-time learners, whereas in December 2019 it only had 216 apprentices and 94 other full-time students.

NCATI was placed in supervised status and since then has been undertaking a structure and prospects appraisal (SPA) with the commissioner.

To ensure this SPA process “is thorough and comprehensive”, NCATI agreed with ESFA to not file completed financial statements for 2018-19 until the culmination of the SPA, the spokesperson said.

A DfE-commissioned report published in February criticised how the national colleges were set up as standalone institutions, saying: “More detailed consideration could have been given to other models such as evolving new institutions from existing education and training providers”.

The report found NCATI had struggled with learner numbers due to delays in announcing HS2 contractors, which meant employers were unable to commit to the apprentice volumes they had originally anticipated.

Source: FE Week


UK shops reopening provides relief for retailers, although insolvency worries loom

The re-opening of shops has provided much-needed relief for retailers in the past two weeks, although a large number are thought to be in financial distress as Covid-19 has caused shopper numbers to slump.

Footfall was down by more than 50 per cent year-on-year in the last week of June, said the British Retail Consortium (BRC). Neverthless, this was some improvement on a dire May, when footfall was down 82 per cent.

Shops reopened on 15 June in England after a three-month lockdown to help slow the spread of the coronavirus.

“Consumers have benefited as shop prices have fallen for the 13th consecutive month. However the situation for many retailers, such as those in clothing and footwear, remains very challenging. Sales have dropped significantly since mid-March and two thirds of businesses are reporting turnover below pre-crisis levels, meaning there is a serious risk to jobs as a result,” said Helen Dickinson, chief executive at the BRC.

Insolvency risk

Separately, it is feared 35 per cent of businesses in the UK are at risk of insolvency – with retail and hospitality firms the most at risk.

In a poll by consultancy The Centre for Economics and Business Research, 17 per cent of firms said there was a moderate to high risk of going insolvent, with a further 18 per cent reporting to be in some financial distress.

However, economists said it was encouraging that 65 per cent of respondents felt there was no risk of collapse.

Hospitality businesses should also feel some relief this weekend when pubs, bars, restaurants and hotels are allowed to re-open. According to the RAC, around 10 million drivers will take to the roads this weekend to celebrate the easing of lockdown on 4 July.

James Endersby, chief executive at data firm Opinium, said: “A light at the end of the tunnel does appear to be surfacing for some businesses across the country – with current trading conditions and future prospects both improving.”

The hospitality and tourism industry employs around 1.6 million people across 127,000 businesses, according to the British Hospitality Association. The retail sector employs some 2.9 million people across 208,000 firms.

Economic contraction worst in 41 years

Official figures showed on Tuesday the UK economy contracted an annualised 2.2 per cent in the first three months of the year.

The Office for National Statistics said it was the joint largest fall since 1979, and this barely covered the coronavirus crisis as lockdown was brought in towards the end of March.

Recent ONS figures showed the economy plummeted by 20.4 per cent in April – the largest drop in a single month since records began.

Source: inews


UK mall operator Intu collapses into insolvency. Thousands of jobs are at risk

Britain is already facing its steepest recession in 300 years, and expected to suffer the worst coronavirus-induced slump of any major economy this year. It's also risking a rupture with its single biggest trading partner, the European Union, if a new trade deal is not agreed soon.

Tens of thousands of jobs have already gone in energy, banking, aviation and aerospace and now many more are at risk after Intu (INTU), one of the United Kingdom's largest shopping mall owners, said Friday that it is entering administration. The company has debts of £4.5 billion ($5.6 billion) and was unable to agree repayment holidays with its creditors. Its shares, which have been on a downward trajectory for several years, plunged 54% on Friday before they were suspended.

Intu owns 17 UK shopping centers and two in Spain, accommodating 800 brands and 400 million shopper visits a year, according to the company. These centers will remain open during the insolvency process and individual retailers will have to enter transitional agreements with the administrators, KPMG.

But UK retailers are themselves suffering from a collapse in sales and many have been unable to pay rent for the upcoming quarter, raising questions as to how many of the shopping centers can realistically afford to remain open.

Just 14% of the rent owed by UK retailers for the third quarter of this year was paid on June 24, the due date, according to property management platform Re-Leased.

"We expect there will be more pressure to come," Re-Leased CEO Tom Wallace said in a statement Friday. "The temporary ban on evictions for non-payment of rent and the government furlough scheme is providing a lifeline to many tenants at the moment, but those measures will not last forever," he added.

Intu said it received just 29% of second quarter rent from tenants, down from 77% for the same period last year. Intu, which employs 2,600 people, was in a tight spot going into the pandemic. It posted a £2 billion ($2.5 billion) loss last year.

News of its collapse into insolvency will come as a particularly bitter blow to retailers because it coincides with a loosening of lockdown restrictions in the United Kingdom that has allowed stores to welcome customers again for the first time in months.

Brands such as Zara and H&M (HNNMY), which have already suffered steep sales declines this year, have outlets in malls owned by Intu. H&M said Friday that worldwide sales fell 50% from March through May, while Zara owner Inditex, the world's biggest clothing retailer, reported a 44% drop in sales for the three months to March. Both brands plan to accelerate store closures and a shift to online retailing — one of the few bright spots in the pandemic.

Only grocery stores and online retailers have dodged the slump in UK retail sales over the past few months, with the pandemic accelerating a move to e-commerce that was already hurting physical stores. Both the volume and value of retail sales suffered record declines over the three months to May, falling by 14% and 13%, respectively, when compared with the previous three months, according to the Office for National Statistics.The proportion spent online soared to the highest on record in May at 33.4%, breaking April's 31% record, according to ONS.In the United States, several major chains, such as JCPenney and Neiman Marcus, have already filed for bankruptcy and as many as 25,000 physical stores are expected to permanently close this year, driven partly by the continued shift to online shopping, according to Coresight Research. More than half of the store closures are expected to come in malls.

Source : CNN Business


Insolvency law shake-up will hurt UK pensioners

Sector says that emergency measures hand too much power to banks
The UK pensions industry has warned that emergency measures aimed at helping struggling businesses during the coronavirus pandemic could leave millions of pensioners worse off. In recent weeks the Pensions Regulator, the Pension Protection Fund and trade bodies representing retirement schemes have raised concerns with the government that the Corporate and Governance Insolvency Bill could have serious unintended consequences for retirement plans and their members.

The legislation, which is being fast-tracked through parliament, aims to ease the burden on businesses hit by the Covid-19 crisis by giving them breathing space of up to 40 days to pursue a rescue plan. During this period they are shielded from legal action and paying debts, including those pursued by the Pensions Regulator for unpaid contributions.

However the pension industry fears that, in its current form, the bill hands too much power to creditors like banks at the expense of pensioners, in the event that a company goes bust with a big pension deficit. “This new moratorium will make recovering unpaid pension contributions even more difficult than the current situation,” said the Pensions and Lifetime Savings Association, the trade body which represents more than 1,300 workplace pension schemes.

“By the time action can be taken, it may be too late for a DB scheme or the PPF to recover anything.” The PPF is a statutory lifeboat scheme that is intended to protect members if an employer sponsoring a defined benefits pension plan becomes insolvent. With the new legislation, a concern for the pension industry is that the proposed moratorium risks blowing out an existing pension funding hole, with trustees in a weaker position to recover unpaid contributions.

Currently, if a business goes bust with an underfunded defined benefit pension plan, the scheme has a right to seek funds from the insolvent company with the pension debt ranking alongside other unsecured creditors such as bank loans. But the draft bill would “dramatically alter” this by giving lending debts that fell due during the moratorium period “super priority”, according to the Society of Pension Professionals, a trade body — effectively pushing pension schemes further down the creditor queue.

“The result is that on a restructuring or insolvency, other unsecured creditors, including defined benefit pension schemes, may suffer materially worse recoveries,” the SPP said in a letter sent to the government this week. “This outcome will inevitably lead to more pensioners not receiving their benefits in full and greater strain on the Pension Protection Fund.”

The trade body said the new measures raised the “serious risk of systemic dumping” of DB pension schemes by financially distressed companies because the proposals weakened the influence of both trustees and the PPF during restructuring talks. “Currently, trustees and the PPF are able to get a seat at the table during restructuring talks, but it is more difficult for them to do so under the new rules,” said Tiffany Tsang, senior policy lead on DB schemes at the PLSA.

Since 2005, the PPF has recovered more than £3bn from failed businesses. This cash has been used to help fund compensation payments to hundreds of thousands of members transferred to the pensions lifeboat, which is mostly funded by a levy on solvent schemes. A PPF spokesperson said: “We’re working closely with [the] government to address the concerns that have been raised about specific provisions in the bill, and to make sure pension schemes and the PPF aren’t disadvantaged.“

A spokesperson for the Pensions Regulator said: “We can confirm we are working closely with the government and the Department for Business, Energy and Industrial Strategy and we are very mindful of the concerns the industry have expressed around the Corporate Insolvency and Governance Bill.” The government said: “This legislation, widely supported by business groups, will help companies through the Covid-19 emergency by giving firms essential breathing space to seek a rescue – ultimately, preserving jobs and livelihoods. “We are working to ensure that pension schemes are not disadvantaged by these important measures.”

Source: Financial Times


UK insolvency law poses hefty losses for government-backed loans

The UK government could face hefty losses on loans made to struggling businesses during the Covid-19 pandemic due to its new insolvency law that can force lenders to accept unfavourable terms during a debt restructuring process.

The new ‘Restructuring Plan', part of the government's Corporate Insolvency & Governance Bill being debated in parliament this week, empowers one class of creditors to force a debt restructuring plan on another class of creditors, in what is known as a cross class cramdown.

It therefore gives a majority of creditors the power to force a debt restructuring onto a single class of creditors who do not agree with it.

This could result in the government having to accept debt write offs on Coronavirus Business Interruption Loans (CBILs) and Coronavirus Large Business Interruption Loans (CLBILs), which are 80% guaranteed by the government.

“We expect to see restructurings in the second half of the year that include these (government guaranteed) bank loans,” said one restructuring lawyer. “Under the new laws you can now cram down a single class -- it would be ironic if this class was these loans.”

The new law requires 75% of lenders, based on value across all the classes, to approve a debt restructuring. This is a far lower hurdle to overcome than the current UK scheme of arrangement system, which requires 75% by value and 50% of creditors in each class to approve the plan before it goes to court. The new law has the ability to cram down a dissenting class unlike the old system.

SUSCEPTIBLE

Some £8.9bn of CBILs were approved by the end of May, providing small and medium-sized businesses with loans of up to £5m each. The vast majority of the loans are unsecured and sit lower down the capital structure, making them susceptible to the will of higher-ranking lenders.

“There is no carve-out in the bill for CBIL loans, and so yes, they could be written down as part of a restructuring. The bank that provided the CBIL loan would be able to rely on the government for a shortfall of up to 80% of the loan,” a second lawyer said.

The loans could be written off completely or they could end up as part of a debt for equity plan, with the government left holding equity stakes in businesses.

“I think a lot of CBILs will be converted into equity – the government could end up the largest minority equity holder in the UK,” a second lawyer said.

 SLOW TAKE-UP

CLBILs, which provide larger corporates with loans of up to £200m, will mainly be secured. As they will rank on an equal basis to existing senior secured lenders, the debt is less likely to be crammed down.

However, the situation is complicated by the fact that existing senior secured lenders have to agree to a dilution of their security when a company takes a CLBIL. Restructuring advisers believe this is why the take up of these loans has been so low, with only 154 agreed so far.

It could also create a more complicated restructuring process where senior secured lenders become pitted against each other.

“Normally secured lenders would form one class in a restructuring, but there is scope for gerrymandering where some secured lenders form a different class and try to override another,” a third restructuring lawyer said.

Under the new bill, there are some safe guards against this as a court has to be satisfied that none of the dissenting classes would be any worse off under the plan than they would be in the event of an alternative process such as a liquidation.

However, the final approval of the plan lies with the judge.

 “It is a bit of a blunt instrument as it is. It will come down to how competent a judge is in understanding what is fair and what the motivations are of the different classes of creditors,” a fourth restructuring lawyer said.

Source: Yahoo Finance

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Three-quarters of Brits have given up on their financial resolutions for 2019 - but there is still hope.

Many people make money-related resolutions at the beginning of the year, but as it turns to spring, around three-quarters of Brits will already have abandoned their financial plans according to the latest survey from Voucher Codes Pro.

But what is it about making changes to our finances that we find so challenging, and is there any way to set yourself up for success? Let’s take a look.

Setting realistic goals

Many people are over-ambitious with their goals. This includes estimating how quickly they can get out of debt, or how much they can save each month. It is no surprise that many people are looking to tackle spiralling personal debt as quickly as possible and so set unsustainable targets for themselves.

The recent study carried out by Voucher Codes Pro revealed that more than one-third of Brits set January goals to get out of debt, and another third wanted to save money for a variety of reasons. While the route to achieving these goals may seem to be to cut out as many luxuries as possible to make massive annual savings, the reality is that most people will slip-up with spending.

The resolutions most likely to fail according to the research are saving a set amount each month, and using no credit at all, which indicates that a lack of flexibility in your goals can be harmful to your progress overall.

Freedom Finance has also produced research which shows that it takes three attempts to complete a new year’s resolution, so there is still time to get back on track.

George Charles, a spokesperson for Voucher Codes Pro, said:

“Having failed at a new year’s resolution doesn’t mean that you have to throw the towel in and wait until 2020 to try again.”

“There’s no time like the present. We’re all going to slip up along the way, but what matters is that you make a conscious effort to do better with your finances for the sake of your future.”

Keeping track is the first step

While many believe that paying a set amount back each month is the route to success, most people will derive more significant benefit from just accurately tracking their spending.

You should examine your finances and keep track of your spending in detailing - cutting out unnecessary expenditure where you identify patterns. Suitable examples include available subscriptions, insurance or TV bundles. You should also look into whether you are paying too much for energy, broadband and mobile contracts - even the smallest reductions in cost can add up over the year.

Set small, manageable goals

While at the beginning of the year you may have estimated how much you could hypothetically save, falling behind on these savings can affect your enthusiasm.

Nick Green from Unbiased.com said:

“A year is a long time, make it your resolution to set yourself small, regular goals over each week or month.

“Award yourself a small prize for achieving each one and tell your partner or a close friend about your goals, so they hold you to them.”

Contact us

We understand that facing up to financial challenges can be a tough and stressful time. However, you should be reassured to know that there are options available and, with the right advice and support, you can take the necessary steps to improve your situation. For specialist legal guidance on how you can get financially comfortable in Scotland, speak with one of our experts today.